Comparative payoffs

October 22nd, 2009 by Philip Brasor & Masako Tsubuku

You can have this baby for a song

You can have this baby for a song

The Oct. 10 issue of the weekly financial magazine Toyo Keizai lists the price earnings ratios (PER) of used properties in accordance with their closest railway stations in the Tokyo Metropolitan, Kinki, and Chubu regions. PER is more commonly used to determine the value of stocks. Toyo Keizai uses it to compare housing as an investment, specifically apartments that are bought to generate income in the form of rent. They use the formula PER = condo price / (monthly rent X 12).

PER is an important indicator since more and more people are investing in rental housing. A lower PER essentially means a better return on investment. What Toyo doesn’t mention, however, is that you have to rent the unit out to get any return, and renting isn’t as easy as it sounds.

What’s most interesting to me, since I’m a renter, is the way the PER shows the relationship between the price of an apartment in a given area and its presumed rental value. Kamakura, for instance, has a fairly high PER of 19. This means that properties are relatively expensive in Kamakura while rentals are relatively cheap; and it isn’t difficult to figure out why. Kamakura is a very popular place to live for people who don’t have to commute to Tokyo.

Some representative areas from the list are shown below. In order to make the statistics meaningful, all the PERs are for 70 sq. meter apartments.

Price Earnings Ratio

StationPriceMonthly rentPER
(Tokyo Metropolitan area)
Shinjuku55M267,00017.35
Ueno41M227,00015.21
Kichijoji46M186,00020.7
Higashi Chiba14M106,00010.84
Omiya25M127,00016.57
Kamakura44M188,00019.35
(Kinki area)
Shin Osaka22M154,00011.66
Kyoto29M145,00016.82
Koshien28M114,00020.34
Umeda27M135,00016.93
(Nagoya area)
Irinaka35M131,00022.12
Sakae19M130,00012.11
Kakuozan27M138,00016.49

Source: Toyo Keizai

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